BRAZIL TAX GUIDE FOR FOREIGN INVESTORS

BRAZIL TAX GUIDEFOR FOREIGN INVESTORS

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Published on 2019.Information updated until the publication date.

Country Introduction....................................................................................................................3

Foreign direct investment . ..5

Financial reporting and auditing.............................................................................................8

Tax system summary..................................................................................................................10

Withholding income tax and tax treaties .... 13

Federal taxes ..16

State taxes 31

Municipal taxes 32

Summary

Country Introduction

3 BRAZIL GUIDE FOR FOREIGN INVESTORS

Brazil is the largest country in South America. It has a land area of over 8.5 million squarekilometers - or 3.3 million square miles - and a population of approximately 208 millionpeople, with 80% of it living in urban areas.

official language is the Portuguese and English is the foreign language most usedby its business community. The Constitution guarantees freedom of religion inBrazil.

There are five geographicregions in Brazil: North,Northeast, Southeast, Southand Central-West. Economicallyspeaking, the Southeast Regionis the most important of them.

Administratively, Brazil is divided into 26 states and one Federal District where the city ofBrasília, the capital, is located. In economic terms, the three states with largestGross Domestic Product (GDP) are São Paulo, Rio de Janeiro and Minas Gerais. All of themare located in the Southeast Region, which concentrates approximately 42% of theBrazilian population.


The largest city in the country is São Paulo, which is also the capital of São Paulo State,and the largest city in South America. The Brazilian government estimates that the Gross

Domestic Product (GDP) grows 1.6% in 2018. In current values, GDP in 2017 was R$ 6.6trillion (Brazilian Reais).

Brazil is a federative republic and consists of theindissoluble union of its States, Municipalities and FederalDistrict. With a representative form of government, all thepower is derived from the people and is exercised in theirname at three separate levels: federal, state and municipal.

The Federal Constitution, promulgated in October 1988, establishes a presidential systemof government with three independent branches: executive, legislative and judicial. Theexecutive power is vested in the President, who is elected by direct vote for a term of fouryears and eligible for re-election. The legislative branch consists of a two-chamberstructure, the National Congress, which is composed of the Federal Senate and the Houseof Representatives. The judicial branch is composed of federal and state courts, whichare headed by the Supreme Court.

The Federal Constitution is the highest law in Brazil and itestablishes rights, obligations and directives regarding allaspects of life in the country. No executive, legislative orjudicial act has the power to disregard or infringe the rulingsof the Federal Constitution. Furthermore, the FederalConstitution also establishes the fundamental rules for theimposition and collection of taxes by the authorities of theFederal Government, States, Federal District andMunicipalities, in addition to providing for the method ofdistribution of the taxes collected by the Federal Government.

Foreign direct investment


Foreign direct investment (IED) means that the foreign investor has either establishedsome sort of corporate entity to achieve their intended objectives or acquired anownership interest in a Brazilian company that already exists.

All IED must be registered before the Central Bank of Brazil (BACEN) in the original foreigncurrency. The investor has 30 days from the inflow of funds to apply for the registration ofthe IED. Foreign capitals may take the form of: Cash, rights and assets sent to Brazil at fairmarket value, reinvested earnings, conversion of foreign-currency loans or current-

account balances, liabilities and others.

All external loans, direct or through the issuance of securities abroad, as well as otherforms of foreign capital, such as royalties due abroad, long-term import financing, aresubject to the Financial Operations Registry (ROF), with the BACEN, and exportprepayments. All this information is recorded in the Central Bank Information System(SIBACEN), which allows the inclusion and exclusion of agents (individuals or legal entities),in addition to conducting consultations, records and updates as necessary.

The National Monetary Council(CMN) has the highestregulatory authority overforeign investments.

Furthermore, the foreign-exchange policy is controlledand supervised by BACEN.


In general terms, there are no restrictions in respect of the repatriation of funds orremittance of profits, regardless of the time the funds remain in Brazil, provided that thesum of capital to be sent abroad is the same as the sum registered with the BACEN.Corporate entities recipient of foreign investment are subject to the same general tax

rules applicable to Brazilian companies owned by individuals or other corporate entitiesresiding and domiciled in Brazil.

Usually, foreign ownership of local enterprises is allowed and, in general, no particular typeof operation receives special treatment. However, there are some restrictions on foreigninvestor control in some economic segments such as communications (television, radiostations and newspaper), aviation (airlines), shipping (coastal and freshwater shipping),mining (exploration and extraction of mineral resources), hydroelectricity (electricitygeneration) and property of rural lands and lands near borders.

There are some lawful means by which foreigner investors can make direct investments inBrazil. Currently, there are two types of entities most commonly used for directinvestments:

In the case of the S.A. its capital is divided into shares and it may be a

privately held or publicly traded company. Publicly traded companies are subject to

normative rules enacted by the Brazilian Securities and Exchange Commission (Comissão de Valores

Mobiliários CVM).

The Ltda. has its capital divided into units of ownership (quotas)

representing the interest of each member in the capital of the

company.

Sociedade Limitada Ltda. (similar to the LLC)

Sociedade por Ações - S.A.(similar to the Corporation)


Brazil requires that foreigner investors, whether individuals or legal entities, are registeredwith a tax ID number provided by the Brazilian Federal Revenue Secretariat (RFB).

In both cases, the legal investor must appoint a person residing in Brazil to be their legal

representative. The legal representative will be responsible and liable for the amongothers withholding and payment of income tax levy on the capital gains earned by aforeign-based individual or legal entity with the sale of assets or rights located in Brazil.

As of 2004, the transactions abroad involving the sale of assets or rights in Brazilexclusively between foreign-based seller and foreign-based buyer is subject to tax levy inBrazil. However, this taxation is still a questionable issue.

In the case of individuals, this tax ID number is called CPF, andlegal entities are registered with a CNPJ.

Financial reporting and auditing


Publicly held companies that are subject to control by the CVM, must publish auditedfinancial statements annually, together with the report of independent auditors. The

financial statements consist of a balance sheet, an income statement, a statement ofretained earnings or accumulated losses (generally provided as a part of the statement of

equity), a statement of cash flows, value-added, and notes to the financialstatements.

The audited financial statements must be submitted to the CVM annually, to theappropriate government agency if the company is a public utility, and to the BACEN andother regulatory agencies if the company is engaged in banking, leasing or insuranceactivities.

Regulatory bodies require companies in regulated

industries, such as banking, public utilities and

insurance, to prepare detailed uniform financial

statements and to conform with specific

accounting requirements relevant to their

industries.


Companies with limited liability, in turn, are not obliged to annual independent audit, andare not required and report to CVM.

All accountants in Brazil must be

registered with the Brazilian Federal

Council (Conselho Federal

de Contabilidade or CFC), which has

primary responsibility for regulating and

overseeing the accounting profession in

Brazil; and the Regional State Boards

regulate the accounting profession.

The CFC is also responsible for issuing statements on professional ethics, bylaws andauditing standards. Until recently, Brazilian Institute of Independent Accountant andAuditors (Instituto dos Auditores Independentes do Brasil IBRACON) has been the entityresponsible for issuing statements on accounting and auditing. Membership in theinstitute is voluntary and consists primarily of independent auditors. The institute remainssupports the CFC on issuing the Brazilian generally accepted auditing standards.

Tax system summary


The Brazilian tax system is governed by the Federal Constitution and by the National TaxCode (CTN). All the federal, state and municipal tax authorities abide by this FundamentalLaw, which contains all general provisions, definitions, competences, procedures andlimitations regarding the Brazilian tax system.

In general lines, income, capital gains and other types of compensation paid, credited,delivered or remitted to nonresidents are subject to withholding income tax (IRF).

The main federal taxes imposed on business entities are: corporate income tax

(IRPJ); social contribution on net income (CSLL); contribution for social securityfinancing (COFINS); contribution for the Social Integration Program (PIS); federalvalue-added or excise tax on manufactured goods (IPI); import duty (II); tax onfinancial transactions (IOF); contribution for Intervention in the Economic Domain(CIDE).

In addition to those taxes, international transactions, especially those related to interest,royalties and service rendering, can be affected by the Brazilian Withholding Income Tax onOutbound Remittances (IRRF) and by the Contribution for Intervention in the EconomicDomain (CIDE).

PIS and COFINS are calculated and paid on a monthly basis based on gross revenue andsales. Rates are PIS 1,65% Calculated on gross revenues and COFINS 7,6% (being subject to a

or non- mechanism in which some credits are allowed. Mechanismwill be established base on the objective of the company and the tax regime adopted.


Additionally, the States, including the Federal District, impose mostly a value-added tax onthe circulation of goods and services (ICMS), and taxes on inheritances (ITCMD) andmotor vehicles (IPVA).

There are also the local taxes imposed by the Municipalities and the Federal District: thetax on services (ISS), the tax on urban property (IPTU) and the tax on transfer of urbanproperty (ITBI).

In order to record amounts due and payment of such taxes, Brazil has been implementing

a new public digital bookkeeping system known as SPED. The main objectives of the SPED

system are to:

integrate the tax offices of different spheres (federal, state and municipal) bystandardizing and sharing tax and accounting information;

streamline and standardize tax returns; improve the identification of tax violations.

The SPED system is being implemented gradually and corporate entities are required toissue documents in SPED format, accordingly to the different criteria for each SPEDmodule. The files relating to the SPED modules usually must be signed through a digitalcertificate approved by a specific program created by the Brazilian Federal RevenueSecretariat.


The implementation of SPED requires changes in the relationship

between taxpayers and tax authorities. Possible inconsistencies found

in the cross-checking of databases will be under increased visibility and

monitoring by the Brazilian tax authorities. Despite of Brazilian Revenue

Department effort by creating an efficient electronic tax reporting system,

it does not on the other hand makes taxpayer life easier. Brazil time to

prepare and pay taxes is extremely high and expensive. As per World Bank

studies and surveys, Brasil is ranked 109th, requiring 1,958 hours per year

to comply with tax demand on the several level of Government Authorities.

This is how much it takes to prepare, file, and pay (or withhold) three

major types of taxes: the corporate income tax, the value added or sales

tax, and labor taxes, including payroll taxes and social security

contributions.

In Brazil, companies are not required to obtain in advance an approval from the taxauthorities before carrying out transactions involving significant amounts. However, whendealing with public sector organizations, most of the times the government requires a taxclearance certificate (CND). The Brazilian tax law does not allow the tax consolidation.Thus, each legal entity is taxed separately from other related entities.

With the proper tax planning it is possible to obtain the most advantageous tax results.However, the Complementary Law 104/2001 allows tax authorities, pursuant to theimplementing procedures to be set forth by a future ordinary law, to disregard lawful actsor transactions carried out with the purpose of dissimulating the occurrence of a taxableevent or the elements of tax liability. To this date, the Complementary Law 104/2001 is still

unenforceable due to the lack of required implementing regulations.

Withholding income tax and tax treaties


In general, all income, capital gains and other compensations paid, credited, delivered orremitted to nonresidents are subject to withholding income tax (IRF) as of below:

Income Tax Calculation Basis (BRL) Tax Rate % Deductible Amount (BRL)

Up to 1.903,98

From 1.903,99 to 2.826,65 7,5 142,80

From 2.826,66 to 3.751,05 15,0 354,80

From 3.751,06 to 4.664,68 22,5 636,13

Above 4.664,68 27,5 869,36

Capital Gain Calculation Basis (BRL) Tax Rate %

Capital Gains up to 5.000.000,00 15

Capital Gains from 5.000.000,01 to 10.000.000,00 17,5

Capital Gains from 10.000.000,01 to 30.000.000,00 20

Capital Gains over 30.000.000,01 22,5

However, this IRF rate is increase to 25% if:

such payments are compensations for services provided; or

the nonresident is domiciled in a tax haven or low-tax jurisdiction, i.e. a countrywhere the income tax is levied at a rate up to 20%.


On the other hand, Dividends paid to nonresidents are not subject to IRF tax.

Interest paid to nonresidents is generally subject to an IRF tax rate of 15%. But if therecipient is a resident of a country that is deemed to be a low-tax jurisdiction byBrazilian tax authorities, the IRF tax rate increases to 25%.

Payments of Royalties, Technical Assistance, Administrative Assistance andTechnical Services to nonresidents are generally subject to an IRF tax rate of 15%. Butif the recipient is a resident of a country that is deemed to be a low-tax jurisdiction byBrazilian tax authorities, the IRF tax rate increases to 25%. These payments are alsosubject to the CIDE tax.

According to Brazilian Federal Revenue Secretariat, the following countries areregarded as tax havens or low-tax jurisdictions:

Andorra, American Samoa, Anguilla, Antigua and Barbuda, Aruba, AscensionIsland, Bahamas, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands,Brunei, Campione , Cayman Islands, Channel Islands (Alderney,Guernsey, Jersey and Sark); Cook Islands, Curaçao, Cyprus, Djibouti,Dominica, Federation of Saint Christopher and Nevis, French Polynesia,Gibraltar, Grenada, Hong Kong, Isle of Man, Ireland Kiribati, Labuan,Lebanon, Liberia, Liechtenstein, Macau, Maldives, Marshall Islands, MauritiusIslands, Monaco, Montserrat, Nauru, Niue Isle, Norfolk Island, Oman,Panama, Pitcairn Island, Qeshm Island, Saint Helena Island, Saint Lucia,

Saint Martin, Saint Pierre and Miquelon, Saint Vincent and the Grenadines,Seychelles, Solomon Islands, Sultanato of Oman, Swaziland, Tonga, Tristanda Cunha Island, Turks and Caicos Islands, United Arab Emirates, UnitedStates Virgin Islands, Vanuatu, and Western Samoa.


Brazil has also entered into a number of tax treaties with foreign countries, which resultedin the reduction of withholding income tax rates on interest, royalties and technicalassistance fees. The foreign countries, among others, that have entered into tax treatieswith Brazil are:

Argentina, Austria, Belgium, Canada, Chile, China, Czech

Republic, Denmark, Ecuador, Finland, France, Hungary,India, Israel, Italy, Japan, Luxembourg, Mexico,Netherlands, Norway, Philippines, Peru, Portugal,Slovakia, Russia, South Africa, South Korea, Spain,Sweden, Trinidad Tobago, Turkey, Ukraine and Venezuela.

If the domestic tax rates are lower than the ones set forth by the tax treaties, the formerapplies. Likewise, the same applies in the case of tax treaties that do not provide for areduced tax rate.

Federal taxes


The IRPJ (corporate income tax) is levied at 15% on the taxable profit determined at theend of each fiscal year. A surtax of 10% is charged on the taxable profit exceeding theamount of R$ 240K per year.

The CSLL (social contribution on net income) is levied at 9% and is calculated on the netprofits before the allowance for IRPJ. In the case of financial institutions, the CSLL rate isof 9%.

In Brazil the fiscal year is the same as the calendar year, but taxes are due andpayable on a monthly basis. Although the corporate year end is not important for taxpurposes, in practice most companies close their accounting period on December31st of every year. Nevertheless, a legal entity may elect to have its corporate taxdetermined on quarterly or yearly basis.

The Brazilian corporate entities are subject to tax on all Brazilian and foreign-sourceincome. Both foreign and profits are taxed as earned.

Operating costs and expenses are deductible from the gross income from acore activity and supplementary businesses when the taxpayer deems their real profit asthe tax base. However, some of these costs and expenses cannot be deducted because oftheir nature or amounts involved.

IRPJ and CSLL Taxes on Profit


Tax losses must be segregated as operational losses and non-operational losses. Taxlosses reported in past tax returns can be carried over up to 30% of the taxable incomein each year and they do not expire. Consequently, the legal entities have to pay tax on atleast 70% of the taxable income every year. Non-operational losses may be set off onlyagainst non-operational gains.

In some circumstances, a legal entity may elect to be taxed based on its estimated profitrather than its real profit.

The Act 11638/2007 introduced new rules to adapt Brazilian accounting practices tothe international accounting standards (IFRS). Additionally, the Act 11941/2009guaranteed fiscal neutrality, i.e. no adverse tax consequences should arise fromthe adoption of the new accounting criteria regarding the recognition of revenue,costs and expenses used to determine net income.


The taxable profit can be either a real profit or the presumed profit for theyear. Exceptionally, the tax authorities may define the taxable profit for a certain company,pursuant to specific rules provided by law.

Tax Regime

A Brazilian company may opt to pay corporate taxes based on a presumed profit method(lucro presumido); or based on actual taxable income (lucro real). The election is annualand binding for the entire calendar year and is generally driven by the profitability of thecompany and its plans for future investments, among other factors.

Under the presumed profit system, corporate taxes are charged on a presumed profit thatis generally calculated by applying a fixed percentage to the gross sales or service revenue(the percentage is based on the type of activity undertaken by the company), plus 100% ofthe passive income. Therefore, no expense deductions are allowed and taxlosses may not be deducted or carried forward. Corporate taxes are computed on aquarterly basis. A legal entity qualifies for the estimated profit regime if its total grossrevenue is equal to or under R$ 78MM in the preceding fiscal year.

Under this tax regime, the gross revenue is submitted to a certain rate for thedetermination of the tax base, in accordance with the activity. In this tax regimeboth IRPJ and CSLL are levied quarterly.

A Brazilian company may also adopt the actual profit method to pay corporate taxes. In thiscase, the tax is charged on the actual profit adjusted for nondeductibleexpenses and nontaxable revenues. Corporate income tax is calculated on a monthly basis.


Corporate entities and individuals engaged in commercial activities must maintainproper accounting books and record transactions in these books as required by law.Corporate entities must maintain books and records:

Official records must be written in Portuguese with values expressed in Reais.Transactions must be recorded in chronological order. Manual or computerizedsubsidiary ledgers for cash receipts and disbursements and for purchases and salesare permitted if they are properly registered. Records must be clear and withouterasures. Blank lines and alterations are not permitted.

Books and records

Method of accounting

Companies in Brazil must use the accrual method for computing the results of theiractivities. A cash method is available for small companies that elect for the simplifiedtaxation system.


On December 28, 2007, after seven years of discussions in the Brazilian Congress, Law no.11.638 was approved. This law makes relevant amendments to Law no. 6404, of December15, 1976, as amended by Law and 11,941 of 2009, regarding the preparation of financialstatements for corporations and large companies, even if they have not been organized ascorporations .A. . Besides those Laws, the Comitê de Pronunciamentos Contábeis (CPC)has the authority to issue accounting statements in Brazil.

Accounting practices

Brazil is a member of the International Accounting Standards Board (IASB). In general,accounting practices adopted in Brazil are comparable to those prescribed by IASBbecause CPC take IASB statements into consideration when preparing accountingstandards.

This Brazilian Law represents a major step

in the process towards harmonization with

International Financial Reporting Standards

(IFRS).


transfer pricing rules apply to cross-border transactions between related partiesand transactions with entities located in tax havens. Transfer pricing rules are intended toavoid the transfer of profits overseas by way of price manipulation in product or serviceimports or exports between related or affiliated companies.

Transfer pricing

For the imports carried out by Brazilian legal entities, it must be checked whether priceswere determined on usual market conditions. The tax authorities set certain limitationson expenses or costs and the excess price must be added to the taxable profit.

As for exports, transfer-pricing rules are adopted to check whether the prices are notsubstantially lower than those on usual market conditions. In these cases, the taxauthorities set minimum values to be the taxable income from the sale of products or therendering of services to foreign related parties.


The most important characteristics of the Brazilian transfer-pricing regime are asfollows:

Exclusive use of transactional methods for determining the price of uncontrolledtransactions with property, service and commercial rights;

Statutory fixed profit margins applied through the prescribed methods, unless adifferent profit margin is established by official publication or research conducted bya technically qualified entity;

Export safeguard rules are available to avoid application of the prescribed

transactional methods; and

Specific interest rates for controlled cross-border loans.


law foresees some methods that legal entities can elect when ascertaining theparameter prices to be compared with the import and export prices.

There are four methods that can be applied to import transactions:

Comparable Uncontrolled Price Method (Método dos Preços IndependentesComparados - PIC, as known in Brazil): It is the weighted arithmetic mean ofthe prices of identical or similar goods, services or rights prevailing in theBrazilian or foreign markets in purchase or sale transactions carried out by thelegal entity itself or a third party, under similar payment conditions.

Resale Price less Profit Method (Método do Preço de Revenda menos LucroPRL, as known in Brazil): It is the weighted arithmetic mean of the sale prices inBrazil of imported goods, rights or services under similar payment conditions.The profit margin changes according to the legal economic activity andit may be set in forty percent (40%), thirty percent (30%) or twenty percent(20%). The twenty-percent profit margin is applied to the majority of theeconomic activities.

Production Cost plus Profit Method (Método do Custo de Produção MaisLucro CPL, in Brazil): It is the weighted average production cost of identical orsimilar goods, services or rights in the country they originated plus export taxescharged by said foreign country and profit margin of twenty percent (20%) ofthe cost.

Quotation Price on Imports Method (Método do Preço sob Cotação naImportação PCI, in Brazil): It is the average daily price of goods or rightssubject to the public prices in internationally recognized commodities andfutures exchange market.

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Additionally, there are five methods applicable to export transactions:

Export Sale Price Method (Método do Preço de Venda nas Exportações PVEx,as known in Brazil): It is the arithmetic mean of the sale prices of the exporttransactions carried out by the legal entity to other customers, or by anotherBrazilian company exporting identical or similar goods, services or rights duringthe same fiscal period and under similar payment conditions.

Wholesale Price in the Country of Destination less Profit Method (Método doPreço de Venda por Atacado no País de Destino, Diminuído do Lucro PVA, asknown in Brazil): It is the average wholesale price of identical or similar goods inthe country of destination under similar payment conditions less the taxes leviedby said country that are included in such price and profit margin of fifteenpercent (15%) of the wholesale price.

Retail Price in the Country of Destination less Profit Method (Método do Preçode Venda a Varejo no País de Destino, Diminuído do Lucro PVV, in Brazil): It is theaverage retail price of identical or similar goods in the country of destinationunder similar payment conditions less the taxes levied by said country that areincluded in such price and profit margin of thirty percent (30%) of the retail price.

Acquisition or Production Cost plus Taxes and Profit Method (Método do Custode Aquisição ou de Produção mais Tributos e Lucro CAP, in Brazil): It is theaverage acquisition or production cost of exported goods, services or rights plusthe taxes levied in Brazil and profit margin of fifteen percent (15%) of the totalsum of costs and taxes.

Quotation Price on Exports Method (Método do Preço sob Cotação naExportação PECEX, in Brazil): It is the average daily price of goods or rightssubject to the public prices in internationally recognized commodities and futuresexchange market.

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As for intercompany international loans, the Brazilian borrower is allowed to deduct theinterest amounts payable to nonresident related party from its taxable income, if suchdeduction does not exceed the six-month LIBOR rate corresponding to the loan

currency, increased by the spread percentage margin. In the case of loanagreements in a currency without a corresponding LIBOR rate, the calculation for suchdeductions is based on the LIBOR published for US dollar deposits.

However, in the case of the loans in US dollar contracted with a preset interest rate, thecalculation is based on the market price of the Brazilian government bonds issued in theforeign market in USD. Likewise, for the loans in Brazilian real (BRL) contracted with apreset interest rate the calculation is based on the market price of the Braziliangovernment bonds issued in the foreign market in BRL. On the other hand, for the loanagreements in BRL made abroad with floating interest rate, the Brazilian Minister of

Finance has the power to set a rate for the calculation of the interest parameter.

Additionally, the Brazilian Minister of Finance

has the power to set the spread percentage

margin based on the market average to be

added to the interest rate used for the

calculation of the interest parameter.


The thin capitalization rules were introduced in theBrazilian tax law in January 2010. Until then, there werenot rules on the proportion between debt and directequity investment made by related parties.

As general rule, the interest expenses are necessaryfor a activities. The transfer pricing rulesaffecting cross-border loans remain in effect, as do thegeneral requirements for deductibility.

Thin Capitalization

These rules shall be applied only to the loan agreements executed as of January 1, 2013.Therefore, the loan agreements dated before 2013 are still under the rules valid until the

end of 2012. However, if such agreements are renewed or renegotiated as of 2013, the newrules apply. Thus, for the loans dated before January 1, 2013 the calculation is based on theLIBOR rate for six-month US dollar deposits, increased by an annual spread of threepercent (3.5%) in the same proportion as the period which interest is due.

Furthermore, the excess of expenses with interest must be added to the taxable income.The same rules above apply to Brazilian lenders. In this case, the lender must add to itstaxable income the difference between the interest charged against the nonresidentrelated party and the interest calculated according to the rules above.


Additionally, if the recipient of interest payments is located in a tax haven or benefits froma favored tax system, the interest paid to such recipient may be deducted for corporateincome tax purposes only if the following thresholds are complied with:

the amount of the Brazilian indebtedness to the tax haven resident doesnot exceed 30% of the net equity of the Brazilian company;

the Brazilian total indebtedness to all entities located in a tax havenor benefiting from a preferential tax regime does not exceed 30% of the netequity of the Brazilian company. Any and all excess interest will be treated asnondeductible expense for IRPJ and CSLL purposes.

each nonresident related party debt-to-equity ratio cannot exceed twice (2:1) thevalue of the direct equity investment made by such nonresident related party inthe Brazilian recipient company;

the overall indebtedness cannot exceed the same proportion (2:1) in relation tothe aggregate amount of the direct equity investments made by all nonresidentrelated parties in the Brazilian recipient company.

Furthermore, the interest paid to nonresident related parties may be deducted forcorporate income tax purposes only if the following thresholds are complied with:


COFINS and PIS are social contributions on billing. COFINS resources are used to financesocial security expenses in the health and social welfare sectors. PIS contributions areused to create a fund for employees that can be withdrawal in the event of marriage,retirement, disability, or purchase of a home.

COFINS and PIS are charged monthly on the gross revenue earned by legal entities, usuallythrough a non-cumulative calculation method. COFINS and PIS are respectively levied at7.6% and 1.65% rates. However, it is possible to offset the tax due against certain credits onconsumables and other expenses, according to applicable law.

The revenue from the export of goods and services is exempt from COFINS and PIS,provided that the funds from such exports effectively enter Brazil.

Legal entities under the presumed profit regime for income tax purposes are taxed byCOFINS and PIS at the rates of 3.0% and 0.65%. However they are not allowed to deductcredits. Special calculation methods may apply to specific industries and types of revenue.

COFINS and PIS Social Contributions

Furthermore, COFINS and PIS are levied on the

import of goods and services at the rates of

7.6% and 1.65%. The amount paid is recoverable

as input tax credits when the taxpayer is under

the non-cumulative regime.

29 IRPF 2018

IPI is a tax charged on the manufacture of domestic products, as well as on the imports offoreign products. This tax must be paid by the manufacturer and/or importer.

IPI is calculated on non-cumulative basis and the tax amount due can be reduced bydeducting the IPI already paid in past stages of the production chain relating to a sametransaction. The IPI paid on raw and packaging materials, among others items, may beused as tax credit. IPI rates vary according to the product, ranging from 0% to 330%.Currently, the higher rates are reserved for non-essential products, such as cigarettes,liquor, cosmetics, and similar products. The export of products manufactured in Brazil is

exempt from IPI.

The II is levied on imports of goods into the Brazilian territory. This tax is not recoverable, sothe amount paid becomes part of the importation cost. The tax base for the II is the CIFprice of a product. Import duty rates range from 0% to 35%, according to the nature of theproducts and the MERCOSUR Common Nomenclature (NCM).

IPI Value-added Excise Tax

II Import Duty


The CIDE is levied on remittances abroad for payment of royalties, technical services andassistance and administrative support. This tax is levied at a rate of 10% on the amountsremitted abroad, and it is payable by the Brazilian company. The CIDE tax is not levied onpayments regarding software license or trade/distribution rights.

The IOF applies to various types of transactions, including:.

credit transactions made by financial institutions;

intercompany loans between non-financial companies;

loans between individual and legal entity acting as borrower;

securities transactions in the securities market;

insurance transactions made by insurance companies;

exchange transactions made by institutions authorized to deal in the exchangemarket.

Currently, the IOF rate for domestic credit transactions carried out by legal entities is0.0041% per day. Additionally individuals or legal entities impose a surtax of 0.38% on allcredit transactions carried out whether. The IOF imposed on foreign exchangetransactions is levied at different rates per type of deal, up to a maximum rate of 25%.Presently, some currency inflows and outflows are subject to IOF tax rate of 0%. In

general, the IOF is levied at the rate of 0.38% on foreign exchange transactions.

CIDE Tax on Overdeas Remittances

IOF Tax on Financial, Insurance andExchange Transactions

State taxes


ICMS is a VAT on the circulation of goods, provision of intrastate and interstatetransportation and communications services, and electric power. For taxation purposes,each operational location is deemed as an ICMS taxpayer.

Normally, intrastate transactions are taxed at a rate of 18% or 19%. The interstatetransactions are subject to a rate of 4%, 7% or 12%, depending on the location of the

purchaser or recipient. There are specific rates imposed on the goods consideredsuperfluous (beverages, perfumes, firearms etc.), and for electricity and communicationsservices. Generally, the transaction price is the ICMS tax base. In some situations, the taxlaw establishes a minimum tax base. The ICMS is also due on the import of goods. Asgeneral rule, exports are not subject to ICMS.

ITCMD tax is levied on inheritances and donations of real estate properties, rights and

movable properties. The rates vary from 0% (in some exempt transactions) to 8%(maximum rate). In addition, States may indicate minimum and maximum values for ITCMDoperations, and the tax base is the market value of the property or right inherited ordonated.

IPVA tax is assessed on a yearly basis and it is imposed on the ownership of all kinds ofvehicles, including airplanes and boats. The tax rate varies from state to state, ranging from1% to 4%. The tax base is the market value of the vehicle at the beginning of the year.

ICMS Value-added Tax

ITCMD Property Transfer Tax

IPVA Vehicle Property Tax

IPTU Real Estate Property Tax

Municipal taxes


IPTU tax is due every year based on the fair market value of real properties in urban areas.

The rate varies from municipality to municipality and according to the location of theproperty. The maximum rate is 5% and, in a few cases, it is possible to obtain taxexemption.

ISS tax is levied on services rendered, except those subject to the ICMS tax (certaintransport, communication services and electricity). The ISS is not a VAT tax. The ISS taxrates range from 2% up to the maximum rate of 5%, depending on the municipality and thetype of service. The taxable base of ISS is the price of the service rendered. The import ofservices is subject to ISS levy, while the export of services is exempt if the service isentirely rendered abroad.

ISS Service Tax

ITBI Real Estate Transfer Tax

ITBI tax is levied upon the transfer of property deeds, and it is payable by the acquirer. Thetax rate ranges from 2% to 6% and the tax base is the sale price.

Published on November 2019.Information updated until the publication date.

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BRAZIL TAX GUIDE FOR FOREIGN INVESTORS

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